Willis Defends Recruitment Costs

Brokerage misses earnings estimate, but invests for the future

The chief executive of Willis Group Holdings Ltd. defended the insurance brokerage firm's increased spending on recruitment and retention, which led to a 35 percent decrease in net income in the third quarter, missing analyst earning estimates by five cents a share.

Joe Plumeri, chairman and CEO of Willis, explained during a conference call that his firm's strategy is to grow organically through sales. The only way to do this, he noted, is to invest in people capable of achieving growth.

"We plan to grow revenue through aggressive expansion of our sales force," Mr. Plumeri said. "We spend money purposely with growth [in mind] for the future. Decisions made today will mean a stronger, more profitable Willis in the future."

To this end, he said the firm has recruited new talent and paid incentives to keep others during what he called a "very competitive" hiring environment. He admitted, however, that Willis has lost some of its executives to "new and old competitors."

In the third quarter, expenses for salaries and benefits increased 13 percent, or $37 million--from $276 million to $313 million. Net income dropped $26 million, down 35 percent from $75 million (45 cents a share) in 2004 to $49 million (30 cents a share). The consensus estimate of analysts was 35 cents a share.

Revenues at Willis were off $3 million, or less than 1 percent, to $487 million.

For the first nine months, net income was down 25 percent, or $79 million, going from $319 million ($1.89 a share) to $240 million ($1.45 a share). Revenues were up 1 percent to $1.7 billion.

Mr. Plumeri pointed out that besides expenses for recruitment and retention, the firm is spending money to improve its technology, and incurred legal costs related to the contingency fee scandal and other matters.

This third quarter was the first to substantially show the impact of the loss of contingent commissions--abandoned earlier this year as part of a settlement with New York Attorney General Eliot Spitzer in his probe of bid-rigging and contingency fee abuse in the industry--as well as the loss of revenue with the sale of its wholesale division, Stewart Smith.

In a separate announcement, Willis said it is expanding the responsibilities of several of its executives and appointing a new chief financial officer, Patrick Regan. He will report to Thomas Colraine, vice chairman, co-chief operating officer and CFO. Mr. Colraine will retain the title of CFO until the end of this year.

Mr. Regan came from Royal & Sun Alliance, where he was group financial controller for the past two years.

Willis also announced it would pay a quarterly cash dividend on the company's common stock of 21.5 cents a share, payable Jan. 16, 2006 to shareholders of record as of Dec. 31.

This is Big Number infographic

Flag: Key Results

Head: How Did Willis Group Do?

$37 Million: Increase of 13 percent in third-quarter expenses for salaries and benefits.

$26 Million: Drop in third-quarter net income of 35 percent, to $49 million

30 Cents: Net income per share in the third quarter, below consensus analyst estimate of 35 cents.

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Willis Defends Recruitment Costs

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